Kareem Construction Company has the following amounts of interest-bearing debt and common equity capital:

Kareem Construction is in the 30 percent average tax bracket.

1. Calculate the after-tax WACC for Kareem.
2. Show how Kareems WACC would change if the tax rate dropped to 25 percent and the estimated cost of equity capital were based on a risk-free rate of 7 percent, a market risk premium of 8 percent, and a systematic risk measure or beta of 2.0.

FINANCING SOURCE Short-term loan DOLLAR AMOUNT $200,000 INTEREST RATE 12% COST OF CAPITAL Long-term loan $200,000 1496 Equity capital $800,000 2296